Leader: FCA is once bitten, twice shy on closed-book review

What first struck me when reading the FCA statement on the outcome of its closed-book review was how carefully worded it was.

The regulator’s thematic review into “the fair treatment of long-standing customers in the life insurance sector” (the phrase “closed-book review” is a dirty word now apparently) sets out clear examples of the poor practices employed by firms to profiteer from their back books and their customers’ inertia.

From the lack of meaningful client reviews, to the failure to explain paid-up charges and their impact on consumers’ investments, the findings from the FCA’s sample of 11 providers lays bare how policyholders have been taken advantage of.

And yet again and again, the FCA dances around the subject of whether there was intent to mislead on the part of the providers, and indeed whether this a widespread industry issue.

In parts the regulator’s statement reads like a legal disclaimer: “It is not possible at this stage to draw any final conclusions…”; “Further work is required to consider whether remedial/and or disciplinary action is necessary”; “no evidence of a strategic intention” to take advantage of customers, and so on.

The FCA’s predecessor, the FSA, first raised the warning flag about treating customers fairly after point of sale back in 2001. Since then, the regulator has at regular intervals warned variously about with-profits, TCF, communications and disclosure relating to legacy products.

It is a classic case of the FCA taking years to investigate a problem and yet somehow failing to crack it when all around them, advisers included, can readily identify widespread consumer detriment.

Of course, we cannot fixate on where the regulator is now without looking at what has gone before. It has taken almost two years from when the FCA first set out its plans to examine the legacy market (with disastrous consequences for providers’ share prices) to the regulator issuing its findings. This time around the share prices of the firms involved held firm – either analysts had priced in the regulator’s report, or they were braced for far worse: a call for contracts to be ripped up and rewritten for example, or large scale redress to compensate those who have suffered due to unfair charges.

Following its now notorious closed-book briefing, heads have rolled and the regulator is a much chastened beast. The FCA has been burned and it shows. But this is not an area the regulator should shy away from tackling – and tackling decisively.

Natalie Holt is editor of Money Marketing – follow her on Twitter here

It does seem extraordinary that after all this time the FCA is still saying things such as “It is not possible at this stage to draw any final conclusions…” Why not? Has it not even managed yet to define the specific issues on which its review should be focussing? The two main ones, of course, are the exercise of unreasonable discretion in the application of early exit charges where the contract is bereft of any explicit tabulation as to what these shall be (the great majority of them, I suspect), which should be confronted head-on, and the application of such charges where they are explicitly tabulated, which cannot be changed other than by overriding contract law and which the FCA is not legally entitled to do. How difficult can it be?